Higher annuity rates have led to a surge in sales, with the market exceeding £1bn in the first three months of 2023.
Figures published by the Association of British Insurers show that the total market for annuities reached £1.1bn in the first quarter of 2023, up 31 per cent on the average quarter of 2022.
The figures show the external market reached £847m, up 67 per cent on the average quarter in 2022. This is the highest quarterly level since pension freedom rules were introduced in 2015.
Rising interest rates have seen annuity rates improve by around 30 per cent over the last year. The guaranteed income paid by an annuity is also looking increasingly attractive to many retirees against a background of volatile stock markets and economic uncertainty.
Standard Life managing director of retirement income Claire Altman says: “The tide is clearly turning when it comes to peoples’ appetite for annuities. While the flexibility offered by drawdown remains an attractive option for many, investment returns aren’t guaranteed, so people should be prepared to see their money go up or down based on market movements.
“Annuities, on the other hand, provide value, security and certainty. In an uncertain economic climate, in which three quarters (78 per cent) of people say they want income certainty in retirement, it’s easy to see why these might be a more appealing option for many.”
However Altman points out that with one in four men potentially living until they are 92, and 94 for women, many may not realise how long their retirement income must last. She adds: “It is vital people to do their homework and seek guidance or advice to ensure they make the right decisions.”
Altman says that for many people a combination of drawdown and an annuity can be a good option, while annuitising later in life, or in stages through retirement can also help balance the needs to secure an income while mitigating against the impact of inflation.
She says: “Eight years on from the pension freedoms and it’s clear that we’re entering a new era of retirement income planning, where guarantees will play a far more central role as people look for ways to make the most of their retirement savings.”
